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Simply put, net worth is what you have minus what you owe. It’s a way to measure your financial standing, what you’re “worth” financially, how much money you have to your name, or however you want to state it. But the details of how to calculate net worth are nuanced and sometimes confusing. Do you count both your house value and your mortgage or just your mortgage? What about valuable possessions? Do you include your retirement accounts that you technically can’t access yet without a penalty? What about life insurance and college savings plans?
The question that’s most important is – why do you care about this number? For me, it boils down to two reasons. The first is that I want to know the total value of everything I have. And the second is that I want to know how much money I have saved and invested, minus what I owe, to calculate my years to financial independence. I’ve landed at needing to calculate two numbers – my Total Net Worth and my Liquid Net Worth. You can download the spreadsheet I use to calculate my net worth numbers from my resources page.
Liquid Net Worth is my term for the value of all my cash-like assets minus any debts. In more financial terms that would be my liquid assets minus liabilities. How do I figure it out? I need to add up my liquid assets and my liabilities and subtract them.
I will pause here and say that I count retirement accounts as liquid assets because I will be using that cash to live on some day so it’s important for adding it in for retirement calculations. I do include my children’s 529 accounts because the beneficiaries can be changed at any time and I still see it as my money, though I will use to pay for their education. I do not include my or my husband’s term life insurance because hopefully we will both outlive the terms and they don't get paid out.
Liquid Assets fall into a couple main categories – cash accounts, retirement accounts, and investment accounts. I open up my bank accounts and look at their current balances and write it down. I also look at my Venmo and PayPal accounts and any cash in my wallet or stashed somewhere and record those amounts. Then I take a look at my retirement and investment accounts and record their current market values. I have a couple personal loans out, meaning I loaned some people money who I expect will pay me back, and I add that in too. Add up all those totals and I have my Liquid Assets amount.
There are a number of different types of Liabilities, also called debts, which need to be subtracted from my assets to get my net worth values. I open up my credit card accounts and record their current balances. Then I look at any loans I have and write down their current principals. If I have any large unpaid bills, like a medical bill, I add that in too. I’m not adding regular expenses in here, just big one-time bills I have incurred. Add up all the amounts I owe and that total is my Liabilities.
I then take my Liquid Assets value and subtract my Liabilities amount, and I get my Liquid Net Worth. This number is important to me because, as I state above, this is what I use to determine where I’m at in relation to my FI number, aka the amount of money I need saved and invested to live off of and no longer need to work.
Liquid Net Worth = Liquid Assets – Liabilities
The second number I calculate is my Total Net Worth. This is my Liquid Net Worth plus the value of all of my belongings. In financial terms, I refer to those belongings as my Fixed Assets.
I break Fixed Assets into two categories – large assets and tangible goods. Large assets are big things like a house, car, RV, boat, etc. I want to know how much I could sell these items for right now, so I look at my house’s Zestimate, my car’s Kelley Blue Book value, or compare prices to similar items on Craigslist. Then I look at my tangible goods which are all the smaller things I own. To do this, I walk around my house room by room and make a list of items or categories of items that have value. This includes clothes, jewelry, appliances, furniture, electronics, bikes, tools, and so on. I think about how much money I could get if I were to sell everything I own. It helps to look up values of comparable items on resale platforms like Facebook Marketplace, OfferUp, or Craigslist. I add together the resale value of my large assets and my tangible goods and that gives me the amount of my Fixed Assets.
I take my liquid net worth, add in the fixed assets, and get my Total Net Worth.
Total Net Worth = Liquid Assets + Fixed Assets – Liabilities
I find it valuable to see the difference between my Liquid Net Worth and my Total Net Worth. It shows me how much of my money is tied up in my belongings. It makes me question my possessions and whether they’re really worth having. If I don’t really love something, I could sell it and put the cash into a savings or investment account, or I could sell it and purchase something similar that costs less and stash the extra cash. It also reminds me how little many things are worth on the resale market compared to how much they cost when purchased new, which helps me stay focused on purchasing used as much as possible.
I calculate these two net worth numbers quarterly using my net worth calculator spreadsheet and it’s valuable watching them change over time. It was especially interesting this past year because we sold our house, held onto the equity in cash for a year, and then purchased another home. My Total Net Worth number remained relatively the same, but my Liquid Net Worth had a huge increase . . . and then equally huge decrease. Talk about a punch in the gut!
I also like to keep tabs on my net worth more regularly so I use the Empower app. It shows a nice graph of my Liquid Net Worth over time and allows me to easily see all the current balances and individual transactions in my accounts.
However you do it, knowing your net worth numbers is important. It helps you both understand your current financial position and figure out where you’re at on your path to financial independence.
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